AMIC American Independence Corp.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

[ X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended  March 31, 2012
OR
[    ]	Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from:________to________

Commission File Number:   001-05270

AMERICAN INDEPENDENCE CORP.

(Exact name of registrant as specified in its charter)

Delaware	11-1817252
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
485 Madison Avenue, New York, NY	10022
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:   (212) 355-4141

Not Applicable

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X] No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X] No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer" in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [   ]               Accelerated filer [   ]

       Non-accelerated filer [X]             Smaller reporting company [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding at May 8, 2012
Common stock, $0.01 par value	8,272,332 shares

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American Independence Corp. and Subsidiaries Index
	Page
PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011	4
Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (unaudited)	5
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and March 31, 2011 (unaudited)	6
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2012 (unaudited)	7
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)	8
Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.    Controls and Procedures	29
PART II – OTHER INFORMATION
Item 1.  Legal Proceedings	29
Item 1A. Risk Factors	29
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.  Defaults Upon Senior Securities	29
Item 4.  Mine Safety Disclosures	29
Item 5.  Other Information	29
Item 6.  Exhibits	30
Signatures	31

Copies of the Company’s SEC filings can be found on its website at www.americanindependencecorp.com.

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Forward-Looking Statements

This report on Form 10−Q contains certain “forward−looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. We have based our forward−looking statements on our current expectations and projections about future events. Our forward−looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that we expect or anticipate may occur in the future, including such things as the growth of our business and operations, our business strategy, competitive strengths, goals, plans, future capital expenditures and references to future successes may be considered forward−looking statements. Also, when we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probably” or similar expressions, we are making forward−looking statements.

Numerous risks and uncertainties may impact the matters addressed by our forward−looking statements, any of which could negatively and materially affect our future financial results and performance.  We describe some of these risks and uncertainties in greater detail in Item 1A, Risk Factors, of AMIC’s annual report on Form 10-K as filed with Securities and Exchange Commission.

Although we believe that the assumptions underlying our forward−looking statements are reasonable, any of these assumptions, and, therefore, also the forward−looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward−looking statements that are included in this report, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. Our forward−looking statements speak only as of the date made, and we will not update these forward−looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, any forward−looking event discussed in this report may not occur.

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PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

American Independence Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share data)

		March 31,
						2012			December 31,
ASSETS:		(Unaudited)			2011
	Investments:
	Securities purchased under agreements to resell	$	2,922		$	2,679
	Trading securities					1,022			-
	Fixed maturities available-for-sale, at fair value		57,588			57,431
	Equity securities available-for-sale, at fair value					3,394			4,231
	Total investments					64,926			64,341
	Cash and cash equivalents					2,123			1,748
	Restricted cash ($10,683 and $5,284, respectively, restricted by related parties)		14,750			7,975
	Accrued investment income					517			654
	Premiums receivable ($3,250 and $2,884, respectively, due from related parties)		7,913			7,461
	Net deferred tax asset					8,434			8,992
	Due from reinsurers ($3,747 and $3,384, respectively, due from related parties)		7,166			7,368
	Goodwill					23,561			23,561
	Intangible assets		872			906
	Accrued fee income ($1,099 and $1,000, respectively, due from related parties)					1,701			1,192
	Due from securities brokers		413			296
	Other assets ($295 and $5, respectively, due from related parties)					8,385			8,286
		TOTAL ASSETS			$	140,761		$	132,780
LIABILITIES AND STOCKHOLDERS’ EQUITY:
	LIABILITIES:
	Insurance reserves ($9,426 and $8,998, respectively, due to related parties)				$	20,103		$	21,030
	Premium and claim funds payable ($10,683 and $5,284, respectively,
			due to related parties)			14,750			7,975
	Commission payable ($1,720 and $1,667, respectively, due to related parties)		3,389			3,020
	Accounts payable, accruals and other liabilities ($1,119 and $687, respectively,
		due to related parties)		4,470			3,858
	State income taxes payable					512			481
	Due to securities brokers		36			3
	Due to reinsurers ($602 and $729, respectively, due to related parties)					2,553			2,424
	Total liabilities					45,813			38,791
STOCKHOLDERS’ EQUITY:
	American Independence Corp. stockholders’ equity:
			Preferred stock, $0.10 par value, 1,000 shares designated; no shares issued
		and outstanding		-			-
			Common stock, $0.01 par value, 15,000,000 shares authorized; 9,181,793
		shares issued, respectively; 8,272,332 shares outstanding, respectively		92			92
			Additional paid-in capital			479,426			479,418
		Accumulated other comprehensive income		1,124			1,278
			Treasury stock, at cost, 909,461 shares, respectively			(9,107)			(9,107)
		Accumulated deficit		(376,587)			(377,692)
				Total American Independence Corp. stockholders’ equity		94,948			93,989
	Non-controlling interest in subsidiaries		-			-
			Total equity			94,948			93,989
		TOTAL LIABILITIES AND EQUITY	$	140,761		$	132,780

See accompanying Notes to Condensed Consolidated Financial Statements.

4

American Independence Corp. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

		Three Months
				Ended March 31,
		2012		2011
REVENUES:
	Premiums earned ($9,004 and $8,055, respectively, from related parties)		$	18,457	$	17,769
	Fee and agency income ($962 and $852, respectively, from related parties)		3,128		3,316
	Net investment income			496		559
	Net realized investment gains (losses)		126		(15)
	Other income			27		93
		22,234		21,722
EXPENSES
	Insurance benefits, claims and reserves ($5,589 and $4,946,
		respectively, from related parties)		11,691		11,048
	Selling, general and administrative expenses ($3,120 and $2,996,
		respectively, from related parties)		8,593		8,908
	Amortization and depreciation		45		214
				20,329		20,170
Income before income tax				1,905		1,552
Provision for income taxes		608		495
Net income		1,297		1,057
	Less: Net income attributable to the non-controlling interest			(178)		(120)
Net income attributable to American Independence Corp.			$	1,119	$	937
Basic income per common share:
	Net income attributable to American Independence Corp. common stockholders	$	.14	$	.11
Weighted-average shares outstanding		8,272		8,511
Diluted income per common share:
	Net income attributable to American Independence Corp. common stockholders		$	.14	$	.11
Weighted-average diluted shares outstanding				8,272		8,511

See accompanying Notes to Condensed Consolidated Financial Statements.

5

American Independence Corp. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

 (In thousands)

(Unaudited)

		Three Months
			Ended March 31,
		2012		2011
Net Income	$	1,297	$	1,057
Other comprehensive income:
	Unrealized holding losses arising during the period		(28)		(96)
	Less: reclassification adjustment for (gains) losses included in net income		(126)		15
Other comprehensive income		(154)		(81)
Comprehensive income			1,143		976
	Less: comprehensive income attributable to non-controlling interests		(178)		(120)
Comprehensive income attributable to American Independence Corp.		$	965	$	856

_______________________________________________________________________________________________

See accompanying Notes to Condensed Consolidated Financial Statement

6

American Independence Corp. and Subsidiaries

Condensed Consolidated Statement of Changes In Stockholders’ Equity

Three Months Ended March 31, 2012

(In thousands)

(Unaudited)

						ACCUMULATED								NON-
				ADDITIONAL		OTHER		TREASURY				TOTAL AMIC		CONTROLLING
		COMMON		PAID-IN		COMPREHENSIVE		STOCK,		ACCUMULATED		STOCKHOLDERS’		INTERESTS IN		TOTAL
		STOCK		CAPITAL		INCOME		AT COST		DEFICIT		EQUITY		SUBSIDIARIES		EQUITY
BALANCE AT DECEMBER 31, 2011	$	92	$	479,418	$	1,278	$	(9,107)	$	(377,692)	$	93,989	$	-	$	93,989
Net income										1,119		1,119		178		1,297
Other comprehensive income						(154)						(154)		-		(154)
Dividends paid to non-controlling interest														(192)		(192)
Other										(14)		(14)		14		-
Share-based compensation expense				8								8		-		8
BALANCE AT MARCH 31, 2012	$	92	$	479,426	$	1,124	$	(9,107)	$	(376,587)	$	94,948	$	-	$	94,948

See accompanying Notes to Condensed Consolidated Financial Statements.

7

American Independence Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

		Three Months Ended
				March 31,
		2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income	$	1,297	$	1,057
	Adjustments to reconcile net income to net change in
		cash from operating activities:
	Net realized investment (gains) losses			(126)		15
	Amortization and depreciation		45		214
	Equity (income) loss			(10)		5
	Deferred tax expense		589		495
	Non-cash stock compensation expense			8		16
	Change in operating assets and liabilities:
	Net purchases of trading securities			(134)		-
	Change in insurance reserves		(927)		(542)
	Change in net amounts due from and to reinsurers			331		(379)
	Change in accrued fee income		(509)		(479)
	Change in claims fund			(172)		(69)
	Change in commissions payable		369		64
	Change in premiums receivable			(452)		420
	Change in income taxes		17		-
	Change in other assets and other liabilities			801		(304)
Net cash provided by operating activities				1,127		513
CASH FLOWS FROM INVESTING ACTIVITIES:
	Change in net amount due from and to securities brokers		(84)		(115)
	Net sales of securities under resale and repurchase agreements			(243)		2,649
	Sales of and principal repayments on fixed maturities		4,865		7,779
	Maturities and other repayments of fixed maturities			941		1,479
	Purchases of fixed maturities		(6,231)		(10,722)
	Sales of equity securities			-		849
	Purchases of equity securities		-		(2,717)
Net cash used by investing activities		(752)		(798)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options				-		21
Net cash provided by financing activities				-		21
Increase (decrease) in cash and cash equivalents				375		(264)
Cash and cash equivalents, beginning of period		1,748		2,614
Cash and cash equivalents, end of period			$	2,123	$	2,350
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during period for:
	Income taxes		$	2	$	2

See accompanying Notes to Condensed Consolidated Financial Statements.

8

American Independence Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Significant Accounting Policies and Practices

(A)

Business and Organization

American Independence Corp. is a Delaware corporation (NASDAQ: AMIC).  We are a holding company principally engaged in the insurance and reinsurance business through: a) our wholly owned insurance company, Independence American Insurance Company ("Independence American"); b) our full service direct writer of medical stop-loss insurance for self-insured employer groups, IHC Risk Solutions, LLC (“Risk Solutions”); c) our 51% ownership in HealthInsurance.org, LLC (“HIO”), an insurance and marketing agency; and d) our 89.6% ownership in Independent Producers of America, LLC (“IPA”), a national career agent marketing organization.  After the end of the first quarter of 2011, the Company consolidated its wholly owned subsidiaries, IHC Risk Solutions – RAS (formerly known as Risk Assessment Strategies, Inc. ("RAS")), IHC Risk Solutions – IIG (“IIG”), and IHC Risk Solutions, Inc. (“RSI”), formerly known as Excess Claims Administrators, Inc into IHC Risk Solutions – Marlton (formerly known as Marlton Risk Group LLC ("Marlton")) and changed the name of the merged entity to IHC Risk Solutions, LLC (“Risk Solutions”).

As used in this report, unless otherwise required by the context, AMIC and its subsidiaries are sometimes collectively referred to as the "Company" or "AMIC", or are implicit in the terms "we", "us" and "our".

Since November 2002, AMIC has been affiliated with Independence Holding Company ("IHC"), which owned 78.5% of AMIC's stock as of March 31, 2012.  The senior management of IHC provides direction to the Company through a service agreement between the Company and IHC.  IHC has also entered into long-term reinsurance treaties through its wholly owned subsidiaries, Standard Security Life Insurance Company of New York (“Standard Security Life”) and Madison National Life Insurance Company, Inc. (“Madison National Life”), whereby the Company assumes reinsurance premiums from the following lines of business: medical stop-loss, New York statutory disability (“DBL”), short-term medical and group major medical.

(B)

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of AMIC and its consolidated subsidiaries. All intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect:  (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the financial statements; and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. AMIC’s annual report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission, should be read in conjunction with the accompanying condensed consolidated financial statements.  

In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the condensed consolidated financial position and results of operations for the interim periods have been included. The Condensed Consolidated Statement of Operations for the three months ended March 31, 2012 is not necessarily indicative of the results to be anticipated for the entire year.

(C)

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In September 2011, the Financial Accounting Standards Board (“FASB”) issued guidance related to evaluating goodwill for impairment.  The new guidance provides entities with the option to perform a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the quantitative two-step goodwill impairment test.  If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the quantitative two-step goodwill impairment test.  Entities also have the option to bypass the assessment of qualitative factors for any reporting unit in any period and proceed directly to performing the first step of the quantitative two-step goodwill impairment test, as was required prior to the issuance of this new guidance.  An entity may begin or resume performing the qualitative assessment in any subsequent period.  This guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The adoption of this guidance, effective January 1, 2012, did not have a material effect on the Company’s consolidated financial statements.

In June and December 2011, the FASB issued guidance that requires all non-owner changes in stockholders’ equity be

9

presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  For public entities, the amendments were effective for fiscal years and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively.  The adoption of this guidance only affected the Company’s presentation of comprehensive income and did not effect the Company’s consolidated financial statements.

In May 2011, the FASB issued guidance to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).  Some of the amendments in this update clarify the FASB’s intent about the application of certain existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  None of the amendments in this update require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting.  For public entities, this guidance was effective during interim and annual periods beginning after December 15, 2011.  The adoption of this guidance, effective January 1, 2012, did not have a material effect on the Company’s consolidated financial statements.

In April 2011, the FASB issued guidance that amends existing standards with regards to transfers of financial assets under repurchase and other agreements that entitle and obligate the transferor to repurchase or redeem the assets prior to maturity. Specifically, with respect to assessing effective control in such agreements, the criteria that the transferor must have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even upon the transferee's default, has been eliminated; as has the corresponding criterion calling for the transferor to have obtained cash or other sufficient collateral to purchase replacement assets from a third party, which was required to demonstrate such ability. This guidance was effective for the first interim or annual period beginning after December 15, 2011.  The adoption of this guidance, effective January 1, 2012, did not have a material effect on the Company’s consolidated financial statements.

In October 2010, the FASB issued guidance that specifies the accounting treatment for the costs incurred by insurance entities when acquiring new and renewal insurance contracts.  The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011.  The adoption of this guidance, which was applied prospectively January 1, 2012, had no impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In December 2011, the FASB issued guidance to amend the disclosure requirements on offsetting financial instruments and related derivatives.  Entities are required to provide both net and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.  The amendments in this Update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.  An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.  The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In July 2011, the FASB issued guidance specifying that the liability for the fees paid to the Federal Government by health insurers as a result of recent healthcare reform legislation should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.  The amendments in this Update are effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective.  The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

2.

Income Per Common Share

Income per common share calculations are based on the weighted-average of common shares and common share equivalents outstanding during the year.  Restricted stock and common stock options are considered to be common share equivalents and are used to calculate income per common share except when they are anti-dilutive.  For the three months ended March 31, 2012 and 2011, shares from the assumed dilution due to the exercise of common stock options and vesting of restricted stock using the treasury stock method were deemed anti-dilutive.

3.

Fee and Agency Income

The Company records fee income as corresponding policy premiums are earned.  Risk Solutions is compensated in two ways.  Risk Solutions earns fee income based on the volume of business produced for marketing, underwriting and administrative services that they provide for their carriers (“fee income–administration”), and earns profit-sharing commissions if such business exceeds certain profitability benchmarks (“fee income–profit commissions”). Profit-sharing commissions are accounted for beginning in the period in which the Company believes they are reasonably estimable, which is typically at the point that claims have

10

developed to a level where recent claim development history (“Claim Development Patterns”) can be applied to generate reasonably reliable estimates of ultimate claim levels. Profit-sharing commissions are a function of Risk Solutions attaining certain profitability thresholds and could vary greatly from quarter to quarter.  Agency income consists of commissions, fees and lead revenue earned by our Agencies.  

Fee and Agency income consisted of the following:

		Three Months Ended
		March 31,
		2012		2011
		(In thousands)
Agency income	$	1,799	$	1,800
Fee income–administration		1,271		1,247
Fee income– profit commissions		58		269
	$	3,128	$	3,316

4.

Investments

The cost (amortized cost with respect to certain fixed maturities), gross unrealized gains, gross unrealized losses and fair value of long-term investment securities are as follows:

		MARCH 31, 2012
								GROSS			GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
					COST		GAINS		LOSSES		VALUE
			(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities		$	30,141		$	455		$	(146)		$	30,450
	Collateralized mortgage obligations (CMO) –
		residential		1,155		168		(2)		1,321
	CMO – commercial				579			-			(366)			213
	States, municipalities and political subdivisions		8,460		548		(11)		8,997
	U.S. Government				6,728			260			(4)			6,984
	Government sponsored enterprise (GSE)		9,350		129		(63)		9,416
	Agency mortgage backed pass
		through securities (MBS)			191			16			-			207
	Total fixed maturities				$	56,604		$	1,576		$	(592)		$	57,588
EQUITY SECURITIES
	AVAILABLE-FOR-SALE:
	Preferred stock with maturities		$	273		$	53		$	-		$	326
	Preferred stock without maturities					2,981			87			-			3,068
		Total available-for-sale equity securities		$	3,254		$	140		$	-		$	3,394

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		DECEMBER 31, 2011
									GROSS			GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
						COST		GAINS		LOSSES		VALUE
			(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities		$	30,031		$	510		$	(66)		$	30,475
	CMO - residential					1,760			168			(40)			1,888
	CMO – commercial		579		-		(364)		215
	States, municipalities and political subdivisions					8,851			528			(12)			9,367
	U.S. Government		5,982		309		-		6,291
	GSE					8,900			129			(46)			8,983
	MBS		196		16		-		212
			Total fixed maturities			$	56,299		$	1,660		$	(528)		$	57,431
EQUITY SECURITIES
	AVAILABLE-FOR-SALE
		Common stock				$	831		$	42		$	(22)		$	851
	Preferred stock with maturities			273			35			-			308
		Preferred stock without maturities					2,981			91			-			3,072
		Total available-for-sale equity securities		$	4,085		$	168		$	(22)		$	4,231

Government-sponsored enterprise mortgage-backed securities consist of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association securities.

The unrealized gains (losses) on certain available-for-sale securities (residential CMO’s and certain preferred stocks with maturities) at March 31, 2012 and December 31, 2011 include $99,000 and $140,000, respectively, of the non-credit related component of other-than-temporary impairment losses recognized in accumulated other comprehensive income.

The amortized cost and fair value of fixed maturities at March 31, 2012, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  The average life of mortgage-backed securities is affected by prepayments on the underlying loans and, therefore, is materially shorter than the original stated maturity.

								% OF
				AMORTIZED			FAIR		TOTAL FAIR
			COST			VALUE		VALUE
				(In thousands)
Due in one year or less			$	3,323		$	3,361		6%
Due after one year through five years			23,090			23,655		41%
Due after five years through ten years				14,878			15,050		26%
Due after ten years			6,919			7,186		12%
				48,210			49,252		85%
CMO and MBS
	15 years			2,335			2,149		4%
	30 years			6,059			6,187		11%
			$	56,604		$	57,588		100%

The following tables summarize, for all securities in an unrealized loss position at March 31, 2012 and December 31, 2011, the aggregate fair value and gross unrealized loss by length of time, those securities that have continuously been in an unrealized loss position (in thousands):

12

		March 31, 2012
			Less than 12 Months	12 Months or Longer	Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
			Value		Loss		Value		Losses		Value		Losses
FIXED MATURITIES:
Corporate securities	$	6,777	$	96	$	1,944	$	50	$	8,721	$	146
CMO – residential			5		2		-		-		5		2
CMO – commercial		-		-		213		366		213		366
U.S. Government			1,237		4		-		-		1,237		4
States, municipalities and political subdivisions		1,397		11		-		-		1,397		11
GSE			408		1		2,821		62		3,229		63
	Total fixed maturities	$	9,824	$	114	$	4,978	$	478	$	14,802	$	592

		December 31, 2011
			Less than 12 Months	12 Months or Longer	Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
			Value		Loss		Value		Losses		Value		Losses
FIXED MATURITIES:
Corporate securities	$	8,538	$	57	$	1,154	$	9	$	9,692	$	66
CMO – residential			-		-		348		40		348		40
CMO – commercial		-		-		215		364		215		364
States, municipalities and political subdivisions			576		12		-		-		576		12
GSE		2,847		43		410		3		3,257		46
	Total fixed maturities	$	11,961	$	112	$	2,127	$	416	$	14,088	$	528
EQUITY SECURITIES:
Common stock		$	446	$	22	$	-	$	-	$	446	$	22
	Total equity securities	$	446	$	22	$	-	$	-	$	446	$	22

At March 31, 2012, a total of 12 fixed maturities were in a continuous unrealized loss position for less than 12 months.  Also, at March 31, 2012, a total of 5 fixed maturities were in a continuous unrealized loss position for 12 months or longer.  At December 31, 2011, a total of 9 fixed maturities and 6 equity securities were in a continuous unrealized loss position for less than 12 months.  Also, at December 31, 2011, a total of 5 fixed maturities were in a continuous unrealized loss position for 12 months or longer.  Except for certain fixed maturities which are determined to be other-than-temporarily impaired, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect the current amortized cost basis of the security.

Substantially all of the unrealized losses on fixed maturities at March 31, 2012 and December 31, 2011 were attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase. The unrealized losses on corporate securities and state and political subdivisions are due to wider spreads.  Spreads have widened in recent years as investors shifted funds to US Treasuries in response to the current market turmoil.  Because the Company does not intend to sell, nor is it more likely than not that the Company will have to sell, such investments before recovery of their amortized cost bases, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2012.

At March 31, 2012, the Company had $610,000 invested in whole loan CMOs backed by Alt-A mortgages.  Of this amount, 64.3% were in CMOs that originated in 2005 or earlier and 35.7% were in CMOs that originated in 2006 or later.  The unrealized losses on all other CMO’s relate to prime rate CMO’s and are primarily attributable to general disruptions in the credit market subsequent to purchase.  

Other-Than-Temporary Impairment Evaluations

The Company reviews its investment securities regularly and determines whether other-than-temporary impairments have occurred.  The factors considered by management in its regular review include, but are not limited to:  the length of time and extent to which the fair value has been less than cost; the Company's intent to sell, or be required to sell, the debt security before the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support; whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions including the effect of changes in market interest rates.  If the Company intends to sell a debt security, or it is more likely than not that it would be required to sell a debt security before the recovery of its amortized cost basis, the entire difference between the security's amortized cost basis and its fair value at the balance sheet date would be recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statement of Operations.  If a decline in fair value of a debt security is judged by management to be other-than-

13

temporary and; (i) the Company does not intend to sell the security; and (ii) it is not more likely than not that it will be required to sell the security prior to recovery of the security’s amortized cost, the Company assesses whether the present value of the cash flows to be collected from the security is less than its amortized cost basis. To the extent that the present value of the cash flows generated by a debt security is less than the amortized cost basis, a credit loss exists.  For any such security, the impairment is bifurcated into (a) the amount of the total impairment related to the credit loss, and (b) the amount of the total impairment related to all other factors. The amount of the other-than-temporary impairment related to the credit loss is recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statements of Operations, establishing a new cost basis for the security. The amount of the other-than-temporary impairment related to all other factors is recognized in other comprehensive income in the Condensed Consolidated Balance Sheets.  It is reasonably possible that further declines in estimated fair values of such investments, or changes in assumptions or estimates of anticipated recoveries and/or cash flows, may cause further other-than-temporary impairments in the near term, which could be significant.

In assessing corporate debt securities for other-than-temporary impairment, the Company evaluates the ability of the issuer to meet its debt obligations and the value of the company or specific collateral securing the debt position. For mortgage-backed securities where loan level data is not available, the Company uses a cash flow model based on the collateral characteristics. Assumptions about loss severity and defaults used in the model are primarily based on actual losses experienced and defaults in the collateral pool. Prepayment speeds, both actual and estimated, are also considered. The cash flows generated by the collateral securing these securities are then determined with these default, loss severity and prepayment assumptions. These collateral cash flows are then utilized, along with consideration for the issue’s position in the overall structure, to determine the cash flows associated with the mortgage-backed security held by the Company. In addition, the Company evaluates other asset-backed securities for other-than-temporary impairment by examining similar characteristics referenced above for mortgage-backed securities.  The Company evaluates U.S. Treasury securities and obligations of U.S. Government corporations, U.S. Government agencies, and obligations of states and political subdivisions for other-than-temporary impairment by examining the terms and collateral of the security.

Equity securities may experience other-than-temporary impairment in the future based on the prospects for full recovery in value in a reasonable period of time and the Company’s ability and intent to hold the security to recovery.  If a decline in fair value is judged by management to be other-than-temporary or management does not have the intent or ability to hold a security, a loss is recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statements of Operations for the difference between the carrying value and the fair value of the securities.  For the purpose of other-than-temporary impairment evaluations, preferred stocks with maturities are treated in a manner similar to debt securities.  Declines in the creditworthiness of the issuer of debt securities with both debt and equity-like features requires the use of the equity model in analyzing the security for other-than-temporary impairment.

Subsequent increases and decreases, if not an other-than-temporary impairment, in the fair value of available-for-sale securities that were previously impaired, are included in other comprehensive income in the Condensed Consolidated Balance Sheet.

Cumulative credit losses for other-than-temporary impairments recorded on securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income were as follows (in thousands):

Balance at December 31, 2011	$	145
Securities sold		(46)
Balance at March 31, 2012	$	99

Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, a continuation of the current imbalance in liquidity that exist in the marketplace, a continuation or worsening of the current economic recession, or additional declines in real estate values may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods and the Company may incur additional write-downs.

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5.

Net Realized Investment Gains (Losses)

Net realized investment gains (losses) for the three months ended March 31, 2012 and 2011 are as follows (in thousands):

		Three Months Ended
					March 31,
		2012		2011
Sales of available-for-sale securities:
	Fixed maturities			$	69	$	2
	Common stock		-		(17)
			Total sales of available-for-sale securities		69		(15)
Sales of trading securities					34		-
Unrealized gain (loss) on trading securities:
	Available-for-sale securities transferred
		to trading category on January 1, 2012			20		-
	Change in unrealized gain on trading securities		3		-
			Total unrealized gain on trading securities		23		-
Net realized investment gains (losses)				$	126	$	(15)

For the three months ended March 31, 2012, the Company recorded realized gross gains of $119,000 and gross losses of $50,000 on available-for-sale securities.  For the three months ended March 31, 2011, the Company recorded realized gross gains of $91,000 and gross losses of $106,000 on sales of available-for-sale securities.

On January 1, 2012, the Company transferred equity securities previously classified as available-for-sale into the trading category and, as a result, recognized $42,000 of gross gains and $22,000 of gross losses in net realized investment gains on the accompanying Condensed Consolidated Statement of Operations.  These gains and losses were previously included in accumulated other comprehensive income on the accompanying Condensed Consolidated Balance Sheet at December 31, 2011.

6.

Fair Value Measurements

For all financial and non-financial instruments accounted for at fair value on a recurring basis, the Company utilizes valuation techniques based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market expectations. These two types of inputs create the following fair value hierarchy:

Level 1 –	Quoted prices for identical instruments in active markets.
Level 2 –	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 –	Instruments where significant value drivers are unobservable.

  

The following section describes the valuation methodologies we use to measure different financial instruments at fair value.

Investments in fixed maturities and equity securities

Available-for-sale securities included in Level 1 are equity securities with quoted market prices.  Level 2 is primarily comprised of our portfolio of corporate fixed income securities, government agency mortgage-backed securities, government sponsored enterprises, certain CMO securities, municipals and certain preferred stocks that were priced with observable market inputs.  Level 3 securities consist of certain CMO securities, primarily Alt-A mortgages.  For these securities, we use industry-standard pricing methodologies, including discounted cash flow models, whose inputs are based on management’s assumptions and available market information. Further, we retain independent pricing vendors to assist in valuing certain instruments.

The following tables present our financial assets measured at fair value on a recurring basis at March 31, 2012 and December 31, 2011, respectively (in thousands):

15

		March 31, 2012
						Level 1			Level 2			Level 3			Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities					$	-		$	30,450		$	-		$	30,450
CMO - residential		-			924			397			1,321
CMO – commercial						-			-			213			213
States, municipalities and political
	subdivisions					-			8,997			-			8,997
U.S. Government		-			6,984			-			6,984
GSE						-			9,416			-			9,416
MBS - residential		-			207			-			207
			Total fixed maturities			-			56,978			610			57,588
Equity securities available-for-sale:
Preferred stock with maturities		326			-			-			326
Preferred stock without maturities						3,068			-			-			3,068
	Total equity securities		3,394			-			-			3,394
Trading securities:
		Common Stock				1,022			-			-			1,022
		Total trading securities		1,022			-			-			1,022
Total financial assets	$	4,416		$	56,978		$	610		$	62,004

		December 31, 2011
				Level 1			Level 2			Level 3			Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities			$	-		$	30,475		$	-		$	30,475
CMO - residential		-			1,024			864			1,888
CMO – commercial				-			-			215			215
States, municipalities and political
	subdivisions			-			9,367			-			9,367
U.S. Government		-			6,291			-			6,291
GSE				-			8,983			-			8,983
MBS		-			212			-			212
		Total fixed maturities		-			56,352			1,079			57,431
Equity securities available-for-sale:
Common stock		851			-			-			851
Preferred stock with maturities				308			-			-			308
Preferred stock without maturities		3,072			-			-			3,072
		Total equity securities		4,231			-			-			4,231
Total financial assets			$	4,231		$	56,352		$	1,079		$	61,662

It is the Company’s policy to recognize transfers of assets and liabilities between levels of the fair value hierarchy at the end of a reporting period.  For the three months ending March 31, 2012, there were no transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy.  No securities were transferred out of the Level 2 and into the Level 3 category as a result of limited or inactive markets during the first three months of 2012.  The Company does not transfer out of Level 3 and into Level 2 until such time as observable inputs become available and reliable or the range of available independent prices narrow.  No securities were transferred out of the Level 3 category in the first three months of 2012.  The changes in the carrying value of Level 3 assets and liabilities for the three months ended March 31, 2012 are summarized as follows (in thousands):

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		CMOs
			Residential		Commercial		Total
Balance, December 31, 2011		$	864	$	215	$	1,079
Sales of securities			(432)		-		(432)
Repayments of fixed maturities		(39)		-		(39)
Net realized
	investment losses		(41)		-		(41)
Net unrealized gain (loss)
	included in accumulated
	other comprehensive income		45		(2)		43
Balance, March 31, 2012		$	397	$	213	$	610

7.

Other Intangible Assets

The change in the carrying amount of other intangible assets for the three months ended March 31, 2012 is as follows (in thousands):

		Other Intangible
		Assets
Balance at December 31, 2011		$	906
Amortization expense			(34)
Balance at March 31, 2012		$	872

8.

Related-Party Transactions

AMIC and its subsidiaries incurred expense of $307,000 and $287,000 for the three months ended March 31, 2012 and 2011, respectively, from service agreements with IHC and its subsidiaries which is recorded in Selling, General and Administrative Expenses in the Condensed Consolidated Statements of Operations.  These payments reimburse IHC and its subsidiaries, at agreed upon rates including an overhead factor, for certain services provided to AMIC and its subsidiaries, including general management, corporate strategy, accounting, legal, compliance, underwriting, and claims.

Independence American assumes premiums from IHC subsidiaries, and records related insurance income, expenses, assets and liabilities.  Independence American pays administrative fees and commissions to subsidiaries of IHC in connection with fully insured health and medical stop-loss business written and assumed by Independence American.  Additionally, Risk Solutions markets, underwrites and provides administrative services, and also provides medical management and claims adjudication, for a substantial portion of the medical stop-loss business written by the insurance subsidiaries of IHC.  Risk Solutions records related income, assets and liabilities in connection with that business.  Such related-party information is disclosed on the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.  The Company also contracts for several types of insurance coverage (e.g. directors and officers and professional liability coverage) jointly with IHC.  The cost of this coverage is split proportionally between the Company and IHC according to the type of risk and the Company’s portion is recorded in Selling, General and Administrative Expenses.

9.

Share-Based Compensation

Total share-based compensation expense was $8,000 and $16,000 for the three months ended March 31, 2012 and 2011, respectively.  Related tax benefits of $3,000 and $5,000 were recognized for the three months ended March 31, 2012 and 2011, respectively.

Under the terms of the Company’s stock-based compensation plan, option exercise prices are equal to the quoted market price of the shares at the date of grant; option terms are ten years; and vesting periods range from three to four years.  The Company may also grant shares of restricted stock, stock appreciation rights and share-based performance awards.  Restricted shares are valued at the quoted market price of the shares at the date of grant, and have a three year vesting period.

Stock Options

The following table summarizes information regarding outstanding and exercisable options as of March 31, 2012:

17

		Outstanding		Exercisable
Number of options		333,956		311,733
Weighted average exercise price per share	$	10.43	$	10.80
Aggregate intrinsic value of options	$	-	$	-
Weighted average contractual term remaining		2.87 years		2.44 years

The Company’s stock option activity for the three months ended March 31, 2012 is as follows:

	No. of		Weighted
	Shares		Average
	Under		Exercise
	Option		Price
Balance, December 31, 2011	333,956		$	10.43
Grants	-			-
Expired	-			-
Exercised	-			-
Balance, March 31, 2012	333,956		$	10.43

Compensation expense of $8,000 and $12,000 was recognized for the three months ended March 31, 2012 and 2011, respectively, for the portion of the fair value of stock options vesting during that period.

As of March 31, 2012, there was approximately $72,000 of total unrecognized compensation expense related to non-vested options which will be recognized over the remaining requisite service periods.

Restricted Stock

The Company issued 12,000 restricted stock awards in the second quarter of 2008, with a weighted average grant-date fair value of $6.92 per share.  No restricted stock awards have been issued since then.  Restricted stock expense was $0 and $4,000, for the three months ended March 31, 2012 and 2011, respectively.  There were no restricted stock awards outstanding as of December 31, 2011.

10.

Other Comprehensive Income

The components of other comprehensive income include (i) net income or loss reported in the Condensed Consolidated Statements of Operations, (ii) certain amounts reported directly in stockholders’ equity, principally the net unrealized gains and losses on investment securities available for sale including the subsequent increases and decreases in fair value of available-for-sale securities previously impaired, and (iii) the non-credit related component of other-than-temporary impairments of fixed maturities and equity securities.

Included in accumulated other comprehensive income at March 31, 2012 and December 31, 2011 are adjustments of $99,000 and $140,000, respectively, related to the non-credit related component of other-than-temporary impairment losses recorded.    

11.

Income Taxes

The provision for income taxes shown in the Condensed Consolidated Statements of Operations was computed based on the Company's actual results which approximate the effective tax rate expected to be applicable for the balance of the current fiscal year.  At March 31, 2012, the Company had consolidated net operating loss (“NOL”) carryforwards of approximately $273,600,000 for federal income tax purposes which expire between 2019 and 2029.  

The net deferred tax assets shown in the Condensed Consolidated Balance Sheets for the periods ending March 31, 2012 and December 31, 2011 are $8,434,000 and $8,992,000, respectively.  In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.  The Internal Revenue Service ("IRS") is currently auditing the Company’s 2009 consolidated income tax return.  The IRS has previously audited the Company’s 2003 and 2004 consolidated